Page 1
@#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
,SOLUTION MANUAL FOR @# @#
Issues in Economics Today 10th Edition by Robert Guell
@# @# @# @# @# @# @# @#
Chapter 1-47 @#
Chapter 1 @#
End of Chapter Questions
@# @# @#
Quiz Yourself
@#
1. Scarcity implies that the allocation decision chosen by society can
@# @# @# @# @# @# @# @# @#
a) not make more of any one good.
@# @# @# @# @# @#
b) always make more of any good. @# @# @# @# @#
c) typically make more of one good but at the expense of making
@# @# @# @# @# @# @# @# @# @# @# @#
less of another. @# @#
d) always make more of all goods simultaneously. E
@# @# @# @# @# @# @#
xplanation: Scarcity implies that choices involve trade-
@# @# @# @# @# @#
offs.
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Understand
@#
Difficulty: 02 Medium Gra @# @# @#
deable: automatic Learning
@# @# @#
Objective: 01-01 @#
Topic: Economics and Opportunity Cost
@# @# @# @#
2. A production possibilities frontier is a simple model of
@# @# @# @# @# @# @# @#
a) allocating scarce inputs to the production of alternative outputs.
@# @# @# @# @# @# @# @#
a) price and production/consumption in a market.
@# @# @# @# @#
b) the cost of producing goods.
@# @# @# @#
c) the number of inputs required to produce varying levels of output. Expl
@# @# @# @# @# @# @# @# @# @# @ #
anation: The production possibilities frontier shows the quantity of two goods tha
@# @# @# @# @# @# @# @# @# @# @#
t can be produced. It implies that scarcity requires that choices be made as to h
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
ow to use resources.
@# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Understand
@#
Difficulty: 02 Medium Gra @# @# @#
deable: automatic Learning
@# @# @#
Objective: 01-01 @#
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
@# @# @# @# @# @# @# @#
Page 2 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
,3. The underlying reason that there are unattainable points on a production possib
@# @# @# @# @# @# @# @# @# @# @#
ilities frontier is that there
@# @# @# @#
a. is government. @#
b. are always choices that must be made.
@# @# @# @# @# @#
c. are scarce resources within a fixed level of technology.
@# @# @# @# @# @# @# @#
d. is unemployment of resources.
@# @# @#
Explanation: The points outside the production possibilities frontier are unattainable.
@# @# @# @# @# @# @# @# @# @
#This means that currently available resources and technology are insufficient to pr
@# @# @# @# @# @# @# @# @# @# @#
oduce amounts greater than those illustrated on the frontier. On a graph, everythin
@# @# @# @# @# @# @# @# @# @# @# @#
g beyond the frontier is unattainable.
@# @# @# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Remember
@#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-01 @#
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
@# @# @# @# @# @# @# @#
4. The underlying reason production possibilities frontiers are likely to be bowe
@# @# @# @# @# @# @# @# @# @#
d out (rather than linear) is because
@# @# @# @# @# @#
a. choices have consequences. @# @#
b. there are always opportunity costs. @# @# @# @#
c. some resources and people can be better used producing one good r
@# @# @# @# @# @# @# @# @# @# @#
ather than another. @# @#
d. there is always some level of unemployment.
@# @# @# @# @# @#
Explanation: If the production possibilities frontier is not a line but is bowed out
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
away from the origin, then opportunity cost is increasing. The reason for this is th
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
at as we add more resources to the production of, for example, pizza, we are usin
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
g fewer resources to produce soda. Compounding that problem, at each stage as w
@# @# @# @# @# @# @# @# @# @# @# @# @#
e take the resources away from soda and put them into pizza, we are moving wor
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
kers who are worse at pizza production and better at soda production than those
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
moved in the previous stage. This means that the increase in pizza production is di
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
minishing and the loss in soda production is increasing. An economist would call t
@# @# @# @# @# @# @# @# @# @# @# @# @#
his an example of increasing opportunity cost. If the production possibilities frontie
@# @# @# @# @# @# @# @# @# @# @#
r is a straight line that is not bowed out away from the origin, then opportunity c
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
ost is constant.
@# @#
AACSB: Knowledge Application Ac@# @# @#
cessibility: Keyboard Navigation Blo @# @# @#
oms: Remember @#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-02 @#
Topic: Attributes of the Production Possibilities Frontier
@# @# @# @# @# @#
Page 3 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
, 5. Suppose you were modeling the impact of the introduction of computer auto
@# @# @# @# @# @# @# @# @# @# @#
mation into manufacturing on a production possibilities frontier (PPF) with two
@# @# @# @# @# @# @# @# @# @# @#
manufactured goods on their respective axes. It would be more likely that the re
@# @# @# @# @# @# @# @# @# @# @# @# @#
sult would be
@# @# @# .
a) generalized growth with the PPF moving both up and to the right.
@# @# @# @# @# @# @# @# @# @# @#
b) specialized growth with the PPF moving both up and to the right.
@# @# @# @# @# @# @# @# @# @# @#
c) generalized growth with the PPF just moving up and not to the right.
@# @# @# @# @# @# @# @# @# @# @# @#
d) specialized growth with the PPF just moving up and not to the right. Ex
@# @# @# @# @# @# @# @# @# @# @# @# @#
planation: Computer automation is a general improvement in technology so it wo
@# @# @# @# @# @# @# @# @# @# @#
uld improve all manufacturing. As a result, it would result in generalized growth
@# @# @# @# @# @# @# @# @# @# @# @#
and move the PPF both up and to the right.
@# @# @# @# @# @# @# @# @# @#
AACSB: Knowledge Application Ac
@# @# @#
cessibility: Keyboard Navigation Blo
@# @# @#
oms: Remember @#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01- @#
03 Topic: Economic Growt
@# @# @#
h
6. The optimization assumption suggests that people make
@# @# @# @# @# @#
a. irrational decisions. @#
b. unpredictable decisions. @#
c. decisions to make themselves as well off as possible.
@# @# @# @# @# @# @# @#
d. decisions without thinking very hard. @# @# @# @#
Explanation: The optimization assumption suggests that the person in question is tr
@# @# @# @# @# @# @# @# @# @# @#
ying to maximize some objective. Consumers are assumed to be making decisions
@# @# @# @# @# @# @# @# @# @# @#
that maximize their happiness subject to a scarce amount of money.
@# @# @# @# @# @# @# @# @# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Remember
@#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-01 @#
Topic: Thinking Economically
@# @#
7. Imagine an economist ordering donuts one-by-
@# @# @# @# @#
one. When deciding how many donuts to order they would pick that number where
@# @# @# @# @# @# @# @# @# @# @# @# @#
the enjoyment of the
@# @# @# @# @#
equals the enjoyment they could get from using the money on another good.
@# @# @# @# @# @# @# @# @# @# @# @#
a. first donut @#
b. last/marginal donut @#
c. average/typical donut @#
d. total number of donuts @# @# @#
Explanation: The enjoyment of the last slice is the marginal benefit of that slice. If thi
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
s enjoyment is more than the enjoyment from some alternative, more will be consume
@# @# @# @# @# @# @# @# @# @# @# @# @#
Page 4 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
@#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
,SOLUTION MANUAL FOR @# @#
Issues in Economics Today 10th Edition by Robert Guell
@# @# @# @# @# @# @# @#
Chapter 1-47 @#
Chapter 1 @#
End of Chapter Questions
@# @# @#
Quiz Yourself
@#
1. Scarcity implies that the allocation decision chosen by society can
@# @# @# @# @# @# @# @# @#
a) not make more of any one good.
@# @# @# @# @# @#
b) always make more of any good. @# @# @# @# @#
c) typically make more of one good but at the expense of making
@# @# @# @# @# @# @# @# @# @# @# @#
less of another. @# @#
d) always make more of all goods simultaneously. E
@# @# @# @# @# @# @#
xplanation: Scarcity implies that choices involve trade-
@# @# @# @# @# @#
offs.
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Understand
@#
Difficulty: 02 Medium Gra @# @# @#
deable: automatic Learning
@# @# @#
Objective: 01-01 @#
Topic: Economics and Opportunity Cost
@# @# @# @#
2. A production possibilities frontier is a simple model of
@# @# @# @# @# @# @# @#
a) allocating scarce inputs to the production of alternative outputs.
@# @# @# @# @# @# @# @#
a) price and production/consumption in a market.
@# @# @# @# @#
b) the cost of producing goods.
@# @# @# @#
c) the number of inputs required to produce varying levels of output. Expl
@# @# @# @# @# @# @# @# @# @# @ #
anation: The production possibilities frontier shows the quantity of two goods tha
@# @# @# @# @# @# @# @# @# @# @#
t can be produced. It implies that scarcity requires that choices be made as to h
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
ow to use resources.
@# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Understand
@#
Difficulty: 02 Medium Gra @# @# @#
deable: automatic Learning
@# @# @#
Objective: 01-01 @#
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
@# @# @# @# @# @# @# @#
Page 2 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
,3. The underlying reason that there are unattainable points on a production possib
@# @# @# @# @# @# @# @# @# @# @#
ilities frontier is that there
@# @# @# @#
a. is government. @#
b. are always choices that must be made.
@# @# @# @# @# @#
c. are scarce resources within a fixed level of technology.
@# @# @# @# @# @# @# @#
d. is unemployment of resources.
@# @# @#
Explanation: The points outside the production possibilities frontier are unattainable.
@# @# @# @# @# @# @# @# @# @
#This means that currently available resources and technology are insufficient to pr
@# @# @# @# @# @# @# @# @# @# @#
oduce amounts greater than those illustrated on the frontier. On a graph, everythin
@# @# @# @# @# @# @# @# @# @# @# @#
g beyond the frontier is unattainable.
@# @# @# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Remember
@#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-01 @#
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
@# @# @# @# @# @# @# @#
4. The underlying reason production possibilities frontiers are likely to be bowe
@# @# @# @# @# @# @# @# @# @#
d out (rather than linear) is because
@# @# @# @# @# @#
a. choices have consequences. @# @#
b. there are always opportunity costs. @# @# @# @#
c. some resources and people can be better used producing one good r
@# @# @# @# @# @# @# @# @# @# @#
ather than another. @# @#
d. there is always some level of unemployment.
@# @# @# @# @# @#
Explanation: If the production possibilities frontier is not a line but is bowed out
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
away from the origin, then opportunity cost is increasing. The reason for this is th
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
at as we add more resources to the production of, for example, pizza, we are usin
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
g fewer resources to produce soda. Compounding that problem, at each stage as w
@# @# @# @# @# @# @# @# @# @# @# @# @#
e take the resources away from soda and put them into pizza, we are moving wor
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
kers who are worse at pizza production and better at soda production than those
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
moved in the previous stage. This means that the increase in pizza production is di
@# @# @# @# @# @# @# @# @# @# @# @# @# @#
minishing and the loss in soda production is increasing. An economist would call t
@# @# @# @# @# @# @# @# @# @# @# @# @#
his an example of increasing opportunity cost. If the production possibilities frontie
@# @# @# @# @# @# @# @# @# @# @#
r is a straight line that is not bowed out away from the origin, then opportunity c
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
ost is constant.
@# @#
AACSB: Knowledge Application Ac@# @# @#
cessibility: Keyboard Navigation Blo @# @# @#
oms: Remember @#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-02 @#
Topic: Attributes of the Production Possibilities Frontier
@# @# @# @# @# @#
Page 3 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
, 5. Suppose you were modeling the impact of the introduction of computer auto
@# @# @# @# @# @# @# @# @# @# @#
mation into manufacturing on a production possibilities frontier (PPF) with two
@# @# @# @# @# @# @# @# @# @# @#
manufactured goods on their respective axes. It would be more likely that the re
@# @# @# @# @# @# @# @# @# @# @# @# @#
sult would be
@# @# @# .
a) generalized growth with the PPF moving both up and to the right.
@# @# @# @# @# @# @# @# @# @# @#
b) specialized growth with the PPF moving both up and to the right.
@# @# @# @# @# @# @# @# @# @# @#
c) generalized growth with the PPF just moving up and not to the right.
@# @# @# @# @# @# @# @# @# @# @# @#
d) specialized growth with the PPF just moving up and not to the right. Ex
@# @# @# @# @# @# @# @# @# @# @# @# @#
planation: Computer automation is a general improvement in technology so it wo
@# @# @# @# @# @# @# @# @# @# @#
uld improve all manufacturing. As a result, it would result in generalized growth
@# @# @# @# @# @# @# @# @# @# @# @#
and move the PPF both up and to the right.
@# @# @# @# @# @# @# @# @# @#
AACSB: Knowledge Application Ac
@# @# @#
cessibility: Keyboard Navigation Blo
@# @# @#
oms: Remember @#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01- @#
03 Topic: Economic Growt
@# @# @#
h
6. The optimization assumption suggests that people make
@# @# @# @# @# @#
a. irrational decisions. @#
b. unpredictable decisions. @#
c. decisions to make themselves as well off as possible.
@# @# @# @# @# @# @# @#
d. decisions without thinking very hard. @# @# @# @#
Explanation: The optimization assumption suggests that the person in question is tr
@# @# @# @# @# @# @# @# @# @# @#
ying to maximize some objective. Consumers are assumed to be making decisions
@# @# @# @# @# @# @# @# @# @# @#
that maximize their happiness subject to a scarce amount of money.
@# @# @# @# @# @# @# @# @# @# @#
AACSB: Reflective Thinking Acces
@# @# @#
sibility: Keyboard Navigation Bloom
@# @# @#
s: Remember
@#
Difficulty: 01 Easy Gradea @# @# @#
ble: automatic Learning Obj
@# @# @#
ective: 01-01 @#
Topic: Thinking Economically
@# @#
7. Imagine an economist ordering donuts one-by-
@# @# @# @# @#
one. When deciding how many donuts to order they would pick that number where
@# @# @# @# @# @# @# @# @# @# @# @# @#
the enjoyment of the
@# @# @# @# @#
equals the enjoyment they could get from using the money on another good.
@# @# @# @# @# @# @# @# @# @# @# @#
a. first donut @#
b. last/marginal donut @#
c. average/typical donut @#
d. total number of donuts @# @# @#
Explanation: The enjoyment of the last slice is the marginal benefit of that slice. If thi
@# @# @# @# @# @# @# @# @# @# @# @# @# @# @#
s enjoyment is more than the enjoyment from some alternative, more will be consume
@# @# @# @# @# @# @# @# @# @# @# @# @#
Page 4 @#
©@#MCGRAW@#HILL@#LLC.@#ALL@#RIGHTS@#RESERVED.@#NO@#REPRODUCTION@#OR@#DISTRIBUTION@#WITHOUT@#
THE@#PRIOR@ # WRITTEN@#CONSENT@#OF@#MCGRAW@#HILL@#LLC.
